Sauk Valley taxpayers could come out ahead on revenue-sharing reform

Income-tax revenue represents just one-sixth of the $6.1 billion the state gives to local governments every year. Proposed reforms would leave untouched the vast majority of that money.

There’s no arguing that Illinois state government must make tough decisions to put its financial house back in order.

Last month, Gov. Bruce Rauner laid out his proposal to do that, which included sending about $600 million less from state income-tax revenues to local governments.

“While the state tightens its belt, so too must local governments and transportation agencies,” Rauner said in his budget address.

In response, local officials hit the pavement, publicizing how much money they purportedly would lose and portraying the reduction as catastrophic. What was missing: context.

Income-tax revenue represents just one-sixth of the $6.1 billion the state gives to local governments every year. Rauner’s proposal would leave untouched the vast majority of that money.

Take the Sauk Valley, for example.

At the end of fiscal year 2013, municipalities and counties in the Sauk Valley were sitting on $85 million in general-fund reserves, according to numbers from the state comptroller’s office. The proposed cut in income-tax revenue would amount to about $9 million, or just 11 percent of the reserves.

The income-tax revenue reduction amounts to 14 percent of Sterling’s general-fund reserves, 27 percent of Rock Falls’ and 3 percent of Dixon’s, which is flush with the recovery of money related to the Rita Crundwell scandal.

For the time being, general-fund reserves can cover the reduction. In the long run, local governments will have to pare their budgets.

This means consolidation of government agencies and services must be on the table. The state has nearly 7,000 local taxing entities, far more than any other state, even those much larger. Illinois has entities unheard of in other states – taxing districts for parks, fire protection, libraries and assorted special purposes.

In the private sector, companies routinely merge operations as a way to save money and stay competitive. Otherwise, they go out of business. This standard should apply to government as well. If taxpayers can get a bigger bang for their buck, they should get it.

In 2011, a consultant told officials from Whiteside County’s police agencies they would save $14 million over a decade if they consolidated their 911 operations.

Unfortunately, political differences kept that from happening. With today’s technology, it no longer makes sense to keep separate dispatching centers.

To improve efficiency, the state can help local governments by doing away with needless, unfunded mandates, particularly with pensions. Under state law, every county except Cook must belong to the Illinois Municipal Retirement Fund, or IMRF, and municipalities that join the IMRF must belong forever. They are banned from leaving.

This is unfair to taxpayers because the system is draining local governments’ ability to provide core services.

The state should instead allow communities to opt for less expensive 401(k)-style plans. Most of the private sector has already made this transition.

In 2014, Sterling and Rock Falls reported that more than 40 percent of their property-tax levies would go to IMRF, police pensions and fire pensions.

Around that time, Sterling City Manager Scott Shumard reminded the public that the state sets the terms for pensions but leaves cities with the responsibility of funding them.

“Legislators benefit because it costs them nothing and earns them endorsements and contributions from the union side,” he said.

That “corrupt bargain,” as Rauner calls it, is a big reason for rising government spending.

The good news for taxpayers is that on Jan. 1, the state income-tax rate fell to 3.75 percent from 5 percent. That means a family with Sterling’s median household income of $39,600 will keep nearly $500 more in its pocket in 2015. That’s money the family can spend at local businesses, generating more sales-tax revenue for local government.